university funding

All those who doubt that the Scottish parliament is becoming more like Westminster every day should take a look at this week’s budget – or, rather, at the fallout from the budget.

When budgets are announced in the House of Commons, the chancellor gets maybe 24 hours of positive coverage before the hidden details are found by economists scratching through the small print.

Then the criticism starts.

John Swinney, the Scottish finance secretary, experienced the same sort of delayed reaction this week.

On Wednesday, he announced his budget and the headlines the following day were all about the alcohol and nicotine levy, the continuation of the public sector pay freeze and university funding.

It has taken a full 48 hours, though, for the real, hidden detail to come bubbling out – and it is only now that the true face of the budget has emerged.

It is little wonder then, that Mr Swinney didn’t champion these new details. He kept them secreted away in the spending review documentation – and with good cause.

Because what they reveal is a massive new hike in taxes on businesses in Scotland. The businesses being hit are not just the big supermarkets, far from it. The so-called “supermarket tax”, now re-labelled as the “fags and booze tax”, will raise about £100 million in new taxes.

But the hike in general business taxation will raise an extra £750 million – on top of the supermarket tax – from ordinary businesses.

Mr Swinney knew he had to come up with a budget to boost the economy and, in doing so, he had a choice to make.

It was a fairly simple choice. Did he support, protect and fund the public sector – paying special attention to infrastructure projects – in an attempt to pump prime the economy with state spending? Or did he support businesses and give them the drivers to create wealth and generate income and use business growth to dig Scotland out of its economic crisis?

He chose the former, utterly and completely. Not only that, but in supporting the public sector so emphatically, he chose to penalise the business community at the same time.

Mr Swinney had better hope that his plan is going to work because, if it doesn’t, then the penalties he is forcing on business will depress the private sector so far that it will not be able to help boost economic growth for years – maybe decades – to come.

This is what Mr Swinney did: he prioritised major infrastructure projects in the hope of using state resources to fund construction jobs. He told councils to borrow to the hilt to keep their capital projects going. He protected the health service budget (even though it makes up a third of the Scottish block grant) and insisted on keeping the policy of no compulsory redundancies in the public sector.

He found extra money to keep university education free, refused to budge on his commitment to a five-year council tax freeze and suggested that the public sector pay freeze might be lifted next year.

But, with resources declining, how was he going to pay for all this?

He cut the enterprise and innovation budgets, announced plans for his supermarket tax (to raise £100 million) and then, hidden away in the small print, was the biggest grenade of all – the plan to hike up business rates by 23 per cent over the next four years.

So there we have it: businesses are going to pay. Businesses are going to pay for free university education, for the council tax freeze, for the drive to renewables, for public sector employment and for pensions.

But, with businesses already suffering and with hundreds going to the wall every month, and in a country which has one of the worst records for business start-ups in Europe and an unenviable record for business collapses when they have started up, this is a dangerous, foolhardy and ultimately self-defeating move.

There is only one sector that can dig Scotland out of economic trouble – and that is the private sector. Scottish businesses have to start making money so that money can be spent on the public sector.

It is no good squeezing businesses until the pips squeak to fund a public sector which, you hope, will spend the money necessary to boost the economy, if that income-generating business sector is going to be damaged severely as a result.

Business leaders have already warned that hundreds of companies will go to the wall as a result of this new tax, and they are right. There are thousands of small businesses around the country which have weathered the financial storm by cutting everything to the bone just to survive.

In many cases, owners have taken little or nothing in wages in an attempt to ride through the worst of the financial crisis, just to keep their businesses going until the climate picks up again.

Not only can they not afford to pay higher taxes, but they will shouldn’t be asked to, either. They are being forced to pay out to keep their public sector equivalents in better-paid jobs with much better pensions – and they will be furious, and rightly so, to face those demands.

But there is a simple reality at the centre of all this that Mr Swinney either doesn’t understand or has, conveniently, chosen to forget. It is this: somebody has to make money before it can be spent.

That somebody is the private sector. It makes the money, the public sector spends it. If Scottish businesses are forced to go under as a result of this budget and its stealth anti-business taxes, then there will be a smaller business base in Scotland (and Scotland has a pretty small one to start with) to generate the money the country needs to fund its public sector commitments.

That might not matter too much at the moment when we can rely on the successful business communities of London and the south east of England to keep the UK economy afloat, but it will definitely matter if Scotland becomes independent.

Mr Swinney wants Scotland to be independent. He also, it seems, wants to undermine the private sector business community that an independent Scotland would need if it is to survive economically on its own.

In every sense, this attack on business to prop up the public sector is the wrong move. It is wrong for Scotland today. It is wrong for Scotland over the next few years as a devolved nation and it is wrong because it would undermine the basis of the economy of an independent Scotland.

Now it is plain for all to see. Teachers, nurses, dustbin collectors, social workers, park-keepers, librarians, environmental health inspectors and the rest of the long list of public employees are the unfortunate people who will have to pay the price of the bankers’ bailout. A pay freeze is the chosen instrument.

It was the centrepiece of John Swinney’s £28 billion budget announced in the Scottish parliament on Wednesday. Behind the finance secretary’s accountant-style delivery, you could feel his anger at being forced to cut and cut and cut to help pay off the £850bn debt heaped on the UK by the bankers.

“Between 2010–11 and 2014–15,” Mr Swinney told MSPs, “Scotland faces a real terms cut of 12.3 per cent – £3.7bn – including a real terms cut of 36.7 per cent to our capital budget. Against this stark backdrop, we will steer a distinct course and make the very best use of the constrained resources available to us.”

There will be a pay freeze for everyone in the public sector earning over £21,000 a year. It will last at least another year, and will probably be followed by below-inflation increases for the next few years. This unpleasant reality is what is meant by the pleasant-sounding word “efficiencies”. This, and job cuts of course: 25,000 in the last year.

To be fair, Mr Swinney has tried to stave off the job losses – and stimulate the economy – with the SNP’s “Plan MacB”. Over £750 million is being transferred out of revenue expenditure and into capital projects such as the new hospital in Glasgow, the school building programme, low-cost homes and the new Forth Bridge.

The health budget of £11.5bn is being “protected” in money terms – but, when inflation is taken into account, there is a real cut. But some important savings for the NHS will come in the long term from Mr Swinney’s new £500m fund – over the next three years – for preventive programmes aimed at three specific groups: the elderly infirm, deprived children and young offenders.

Controversially, about one-fifth of that money is to come from a levy on supermarkets selling alcohol and cigarettes, the causes of much NHS expenditure. The supermarkets say they are being discriminated against and that most problem drinking is caused by people buying from corner shops.

The main losers in this budget are the local councils. They are being given just £8.8bn (a cut of 7 per cent in real terms) and being forced into freezing their council tax. The government says councils will have to borrow money if they want to build more schools or homes or improve their roads.

Scotland’s 41 further education colleges are another set of losers. Their budget is being cut by £70m. Some may be forced to merge. Opposition MSPs are asking how this squares with improved youth training and the programme for 100,000 apprenticeships. The 20 universities fare a little better, with an increase of £140m next year. But it is less than the £200m the universities say they need to keep up with English universities which, next year, will rake in £9,000 per student.

So there are plenty of controversies to help MSPs while away the winter until this “draft” budget is passed in the early spring. But “draft”, in this case, means “more or less fixed” because the SNP, for this first time, have a majority in parliament.

The real controversies will take place in the 32 councils which have to implement much of this budget. Will they dare to defy the council tax freeze – which, in law, they are entitled to do? Will they tear up the concordat which has seen a partnership between central and local government over the last four years? Will they just stop providing services and explain to aggrieved residents that it is all the fault of government cuts?

And this council-rumbling will take place as local elections are looming next spring and the trade unions embark on a winter of discontent. They have plenty of be discontent about: the pay freeze, job losses, unemployment, higher pension contributions. The unions’ argument, that the deficit should narrowed by closing the tax loopholes enjoyed by the rich and by the large corporations – and not by ordinary workers – may begin to find traction through such a winter.

In the face of this swelling unease, there are signs that the coalition at Westminster is beginning to lose its nerve. Vince Cable, the business secretary, was likening the threat of world economic collapse to being “at war”. There were rumours at the Liberal Democrat conference of the government contemplating a Plan B, spending more on capital projects to get the economy back into growth.

And with the warnings from the International Monetary Fund and others of only 1 per cent growth next year and higher and higher unemployment, followed by dramatic falls on the stock market, Plan B becomes more and more likely. John Swinney’s Plan MacB may prove to be the Scottish experiment that shows the way.

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